What is a Fixed Asset

Standard

The term fixed asset is used to describe an item with a useful life of more than one reporting period.

In general fixed assets are long lived economic resources such as land, building and machines that are used in business to carry out profit making activities. Fixed assets are commonly reported in a balance sheet in a category known as Property, Plant and Equipment. Fixed assets are held for the production or supply of goods and services, they are not directly sold to consumers and are items that cannot easily be converted into cash.

Fixed assets are initially recorded in the balance sheet at its original cost and are then subject to a reduction in value over time through an accounting transaction termed depreciation, which is the expense generated by the use of the asset due to fair wear and tear over time. Thus the net book value of an asset is the difference between the original cost of the asset minus any associated depreciation.

Examples of fixed assets comprise buildings, computer equipment, machinery, vehicles, furniture and fittings, land and leasehold improvements. Inventory is not considered a fixed asset as inventory is purchased with the specific intent of reselling or incorporating into a product that is ultimately sold.

In accounting, fixed does not mean of imply immovable. Any asset that is expected to be used for more than one accounting period is considered a fixed asset.

Please note: Prepared by Leigh Barker MWC Group, Gordon and West Pennant Hills. Note that all content of this blog is general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstance.